Another nail in SCO's Linux lawsuit coffin

Another nail in SCO's Linux lawsuit coffin

Summary: In a 102-page ruling, Judge Dale A. Kimball eviscerated SCO's claims that it owns the copyright to Unix (see Groklaw's coverage, NYT, WSJ).

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TOPICS: Linux, Open Source
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In a 102-page ruling, Judge Dale A. Kimball eviscerated SCO's claims that it owns the copyright to Unix (see Groklaw's coverage, NYT, WSJ). For the last several years, SCO has been engaged in lawsuits against IBM and others, claiming that parts of Linux violate its alleged copyrights to Unix. In its lawsuit versus IBM, SCO alleged that IBM contributed portions Unix code owned by SCO to the Linux community.

The ruling, which named Novell as the owner of the Unix and Unixware copyrights, could make SCO give up its four-year effort to extract royalties from Linux providers. Novell acquired Unix from AT&T in 1995.

In March 2004, SCO wanted to charge users for an SCO intellectual property license--$699 per single-processor server--to use Linux and dodge any legal action.

During the same time period, SCO filed lawsuits against auto parts retailer AutoZone for violating SCO's Unix copyrights by running versions of the Linux operating system that "contain code, structure, sequence and/or organization from SCO's proprietary Unix System V code in violation of SCO's copyrights." DaimlerChrysler was also sued for alleged violations of the automotive company's Unix software agreement with SCO.

Both Microsoft and Sun paid SCO for licenses related to the Unix copyright claims in 2003.

I interviewed SCO CEO Darl McBride in March of 2004, and he predicted that his company would surpass Red Hat's leading Linux distribution with its Unix offering.

"If you remember SCO back in the eighties, nineties, was the leading brand for UNIX on Intel. If you think about it in a horse-race metaphor, the UNIX on Intel race was going, SCO was way out ahead. As you head into early 2000s, all of a sudden SCO comes back to the pack and Red Hat shoots past it. OK? And now we are back on our horse and gaining ground again in some major, albeit probably small compared to Red Hat, but at the end of the day, that is the race. Now the question that it is going to come down to you is, we get through the court system and get our claims heard and the jury comes back with the verdict we expect to get, then you're going to see it come back in the other way. We're going to catch up and pass Red Hat again."

Since the lawsuit has been filed, SCO has poured tens of millions into proving its claims and seen a decline in its annual revenues. In the meantime, Red Hat has been growing at a good pace. For its first fiscal quarter ending May 31, 2007, Red Hat generated $118.9 million in revenue, an increase of 42 percent from the year ago quarter and 7 percent above the prior quarter. Net income for the quarter was $16.2 million.

For fiscal year 2004, SCO revenue was $42.8 million and in 2003 generated $79.25 million. Microsoft and Sun contributed more than $13 million in revenue across 2003 and 2004. This year SCO had revenue of $12,029,000, down from $14,469,000 from the prior year, for the first two quarters of its fiscal year.

The company attributed the revenue decrease to competitive pressure on its Unix products and services. More recently SCO has added mobile services to its portfolio, with HipCheck for remote management of Unix and Windows servers and PC and mobile handheld systems. Shout Postcard allows users to combine images, audio and text into a postcards that users can share via e-mail.

Legal costs related to the variety of lawsuits related to it Unix copyright claims were costing several million dollars per quarter, but in the last quarter was only about $1 million as the courts weighed the evidence and the participants the outcome.

In the most recent quarterly earning announcement, McBride said: "Even though competition continues to impact our revenue, we are pleased that our legal costs and operating expenses are lower than the comparable prior periods which improved our financial results. We are committed to our strategy of serving our UNIX customers, developing innovative new mobile technologies and protecting our valuable intellectual property."

SCO' shareholders haven't benefited from the company's lawsuits and intellectual property claims.

sco1.jpg

The stock price closed at $1.49 on Friday.

Groklaw, which has been highly critical of SCO's legal maneuvers, concluded:

That's Aaaaall, Folks! The court also ruled that "SCO is obligated to recognize Novell's waiver of SCO's claims against IBM and Sequent". That's the ball game. There are a couple of loose ends, but the big picture is, SCO lost. Oh, and it owes Novell a lot of money from the Microsoft and Sun licenses.

SCO hasn't yet responded to the Judge Kimball's ruling. He is asking the involved parties to prepare statements on the status of the case and pending motions by August 31 in light of his finding that Novell's has ownership of the Unix-related copyrights. It's not over, but the Linux community is probably doing some celebrating this weekend...

Topics: Linux, Open Source

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47 comments
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  • Too bad

    All those wasted resources that could have gone toward development and sales. Instead they weighed themselves with negative PR and an increasing isolation from would be customers.
    Hrothgar - PCLinuxOS User
    • They only spent $75 million ...

      ... on a failed and horribly ill-conceived lawsuit. And they have $9 million in market cap now. Maybe a little less today since they are down from the $0.44 close on Monday. (But up $0,02 from yesterday!!!)
      Still Lynn
  • Dan, a small correction for you...

    [i]I interviewed [b]former[/b] SCO CEO Darl McBride..[/i]

    He's still the CEO, at least as far as the latest entry on his personal website says. But who knows, maybe he [i]was[/i] canned within the last 24 hours?
    Tony Agudo
    • thanks

      Made the correction...
      DF
      dbfarber
  • Another nail? Try THE nail.

    It's over. I'm sure a lengthy appeals process would only annoy the judges and cost SCO even more money.

    The only option for SCO is bankruptcy. Right. Now.

    As for all of you naysayers... I'm throwing a party. I'll have plenty of crow for everyone, be sure to get your fill! Oh, don't forget a napkin to wipe any egg off of your face.
    Sabz5150
    • It was over long ago.

      The moment SCO started trying to put one over the judges and failed to produce any evidence whatsoever (despite repeated demands) they were knackered. This really is just a formality.

      Now for the shareholders', and others, class action lawsuits. I wonder if Darl can be held personally accountable in any way?
      odubtaig
      • I believe he can

        Yes, Darl might very well find himself personally liable, and BS&F, SCOX's law firm in this mess, might also find themselves as defendants. Darl and any other executive and/or board member might find themselves facing the SarbOx "knew or should have known" standard.

        Message to SCOX execs & BOD: Good luck kiddies, you're going to need it.
        lordshipmayhem
        • Depends on how the suit is filed but

          most likely it's the corporation that's liable as Darl and the other executives are only agents of the corporation. So who are the stock holders going to sue? Themselves?

          The best thing that SCO could do right now is drop the suit and pour the funds allocated for future legal expenses into R&D and marketing and see if they can't salvage the corporation. The fact is that SCO didn't have a case and they've tossed a ton of cash down a rat hole, it's time to call it a learning experience and move on.
          maldain
          • ENRON made it tougher on McBride

            The newer bankruptcy laws that followed the Enron disaster will make it harder for McBride to simply get off scott free when Caldera Systems files for bankruptcy.

            For McBride, this story is far from over. All the counter claims are still going to happen from IBM, Novell, and then Red Hat and others if there is any money left.
            DonRupertBitByte
    • Appeal isn't likely

      If you look at Groklaw, and PJ is rarely wrong about these things, any appeal will need Judge Kimball's ok to go ahead and her take is that he's unlikely to give it.

      Remember this is a finding on fact and the finding has been delivered. It knocks the slats out of SCOs case(s).

      There might be some business left for them but I'm not sure about Darl's future.

      ttfn

      John
      TtfnJohn
    • Maybe not. SCO can still appeal to a higher ...

      ... court. As I recall, SCO's attorneys agreed to SCO stock options for partial payment so they may want to pursue this further.

      That said, does SCO have any hope of being anything other than a shadow of its former self? NOPE!

      Ironcially, by the time SCO bought whatever they bought from Novell, it was a "pig in a poke". Novell extracted all the intellectual property value of UNIX System V before giving away the UNIX specification to The Open Group and selling the SVR4 codebase to SCO -- who today is a very small player with no place to go and lots of pressure from Linux vendors.

      Now that all of the major UNIX players have embraced Linux, and with Novell owning the SVR4 codebase as well as SuSE Linux (assuming that this decision is not overturned by a higher court), we should expect the lines between the two codebases to become even more fuzzy.

      The contenders are now Linux (Redhat, SuSE, Ubuntu, etc.), SVR4 variants (Solaris, AIX, HP-UX, ... , SCO's UnixWare/OpenServer, others?), and the FreeBSD variants (MacOSX, etc.) Not much else matters.
      M Wagner
      • Marc, are you hinting at a new PIPE deal?

        What are they going to fund an appeal with? They have $9 million and they owe Novell $25 million. The lawyers may have to pay part of that $25 million that SCO owes Novell since SCO has now been declared liable for converting Novell's money to their use.

        So where will the money come from to pay for an appeal? Will F&BS (Flexner, Boies and Schiller) do it gratis to compensate for their incompetence? Would you take free services from an incompetent to pay for previous incompetence?

        The SCO Group never WAS "its former self", it was a failed Linux vendor that had a fairly good product in Open Linux. They just could do business as well as they did software. It happens. The decision to bring in Darl and his Daryl brother Kevin as counsel was the first step off the cliff by Wiley SCOXote. They have now grasped the anvil and are following their natural course in this gravity well.

        Novell didn't sell anyone the codebase. They sold them the licensing business. And it was the Santa Cruz Operation, not Caldera. What Caldera bought is known only to Tarantella, since absorbed by Sun and folks at Caldera who aren't talking. Certainly one of the ways that tSCOg became such a minor player was by suing their customers for discontinuing use of their Unix product. Think that business plan will inspire others to imitate it?

        For almost 6 years pundits have been ignoring that the Unix codebase is so different from Linux that it would be easier to write the code you wanted from scratch than to copy and adapt it. I don't see any fuzziness creeping in to clean room implementations in ANY forseeable future.

        And my crystal ball doesn't show SCOX as a going concern after mid-November.
        Still Lynn
  • Please SCO don't give up!

    We need something to blog about tomorrow.
    See my small cartoon:
    http://geekandpoke.typepad.com/geekandpoke/2007/08/boring-new-worl.html

    Bye,
    Oliver
    owidder
  • Now someone could by the SCO company

    as it should go for a song and then GPL Unixware....
    Or/and
    MS might offer Darl a job although he failed with this attempt.
    deaf_e_kate
    • Not so simple ...

      [i]"as it should go for a song and then GPL Unixware...."[/i]

      Whoever might purchase SCO [b]could not[/b] GPL Unixware because Novell [b]owns[/b] the copyrights, remember? Only [b]Novell[/b] can legally GPL Unixware. This issue, in fact, is likely to come back to haunt Sun. The opensourced Solaris [b]without[/b] the required permission of Novell because SCO assured them that they (SCO) had the authority to give them that permission. The lawyers are probably already salivating over that one, among the countless other litigation possibilities this ruling opens.

      [i]MS might offer Darl a job although he failed with this attempt.[/i]

      I think Darl will be lucky if he avoids a jail cell. He's going to have to face a lot of unhappy stockholders [b]after[/b] he deals with all the unhappy defendants and injured third parties who will be trying to get their legal hands around his neck. I would not want to be in his shoes. I don't think even Microsoft and all of their wealth can deliver Darl at this point. Its no wonder MS has been dealing directly with Novell lately. It was because they got a premonition of where Darl was leading them and it wasn't a pretty place. Their IP deal with Novell is there asbestos suit right now to protect them from the aftermath of this debacle.
      George Mitchell
      • The other problem is...

        ...what to do with SCO's liabilities. I suppose someone could try to buy SCO's assets only, but that's likely to irritate people who are owed money (causing additional lawsuits). Personally, I think that unless SCO appeals the decision that they'll be in Chapter 7 bankruptcy in the near future; either they'll accept reality and file the petition themselves, or Novell will do it for them. If they do appeal, they may be simply postponing the inevitable, but it would allow McBride to hold onto his job a while longer and hope for a miracle (I do think that's what SCO is going to do). SCO could also try to ride the storm out (neither appeal nor file for bankruptcy), but I think that if they do, there will be nothing left but the name once the remaining cases are decided. Any chance SCO had to obtain mercy from their opponents evaporated once this ruling came down; there will be none, I'm sure.
        John L. Ries
        • Their only significant asset was the Unix IP which they don't own ...

          they are toast. Anyone wanting to bag that IP is going to need to bag Novell, and that will have to pass all sorts of tests including anti-trust issues which would probably put MS and IBM out of the race. Probably Apple or Sun could bag Novell if they could dig up the cash, but Novell is probably worth a bit more now that they have clear title to Unixware.
          George Mitchell
          • Sounds about right

            I do believe that Marvin Marvinski's forecast of being able to buy the whole company for $5, is in danger of coming to pass, if anyone actually wanted the headaches.
            John L. Ries
      • I think Sun is OK.

        It's my understanding that Sun's rights to this IP derive from the original deal they made with ST&T before Novell aquired SVR4.

        Back when they paid SCO the money I saw many posts about why Sun would need to, since they were already covered by the arrangemtn they had with AT&T.

        The only theory I put any credence in, was that the money to SCO was for updates, changes, and source to new X86 drivers SCO had developed as part of Unixware.

        Even before Sun did the deal with SCO, I remember it was offering to indemnify any of it's linux customers against lawsuits like SCO's based on it the IP rights it already had from AT&T.

        If HP, IBM, and others (SGI) had gotten licenses from AT&T like Sun did, instead of the cheaper more limited ones they have (as I understand it,) this case would have fizzled out a long time ago I think.
        kjmcdonald
  • Now MS Must Pay Full Price

    Microsoft thought they could get a deal buying a Unix license for a few measly millions.

    Now they must pay Novell full price.

    By my estimate, it's worth at least 1 Billion per annum to use Unix technology in their products.

    Same for Sun, Apple, RedHat and all the rest.
    jabailo1